Unocalís Board of Directors has adopted the following guidelines as part of its continuing effort to enhance corporate governance at Unocal and to communicate Unocalís governance policies to stockholders and other interested parties. These guidelines, along with the Directorsí Code of Conduct, Unocal Code of Conduct, charters of Unocalís standing Board committees and Unocalís restated certificate of incorporation and bylaws, provide the basic framework for the governance of Unocal. These guidelines will be made available on Unocalís website and written copies will be provided to stockholders upon request.
The board of directors is the ultimate decision-making body of Unocal other than on those matters reserved to Unocalís stockholders. Unocalís board oversees and provides strategic guidance to management in order to enhance the long-term value of the company for its stockholders. Unocalís day-to-day business is conducted by its employees, managers and officers, under the direction of the chief executive officer (CEO) and the oversight of the board. In addition to its general oversight of management, the board also performs a number of specific functions, including:
Directors are elected annually by the stockholders at the annual meeting. The board proposes a slate of nominees for consideration each year. Between annual meetings, the board may elect directors to serve until the next annual meeting at which the term of that director expires. The boardís governance committee is responsible for managing the process for identifying, investigating and recommending prospective directors to the board. The governance committee regularly reviews the composition of the board in light of the backgrounds, industry and professional experience, and the various communities, both geographic and demographic, represented by current members. It also monitors the expected service dates of board members, any planned retirement dates and other anticipated events that may affect a director's continued ability to serve. The board has approved the following minimum qualifications for first-time nominees for directors, including nominees recommended by stockholders, for election to Unocalís board: (1) a demonstrated breadth and depth of management and/or leadership experience, preferably in a senior leadership role (e.g., chief executive officer, managing partner, president) in a large or recognized organization; (2) financial literacy or other professional or business experience relevant to an understanding of Unocal and its business; (3) a demonstrated experience in or knowledge of international operations; and (4) a demonstrated ability to think and act independently, as well as the ability to work constructively in a collegial environment. The governance committee identifies potential candidates for first-time nomination as a director using a variety of sources Ė recommendations from Unocalís current directors and management, stockholder recommendations, contacts in communities served by Unocal and outside search firms selected by the governance committee. Stockholders may recommend candidates to the governance committee by submitting the name of the candidate and appropriate supporting information to the Corporate Secretary of Unocal, 2141 Rosecrans Avenue, Suite 4000, El Segundo, CA 90245.
Unocal seeks to maintain a board composed predominantly of independent directors, with no more than two management directors serving on the board at any time. It is the objective of the board that all non-management directors be independent directors. For a director to be considered independent, the board must determine that the director does not have any direct or indirect material relationship with Unocal other than as a director and the director must otherwise satisfy the independence requirements in the New York Stock Exchange (NYSE) listing rules. Audit committee members must meet the heightened independence requirements applicable to them under the rules of the NYSE and the Securities and Exchange Commission. The board will consider all relevant known facts and circumstances in making its independence determinations and will make these determinations from time to time and at least annually and in connection with new board appointments. Written questionnaires are used to gather input to assist in this process. The Directorsí Code of Conduct also requires existing directors to notify the chairman of the board and the chair of the governance committee of any change in events or circumstances that may impact the boardís assessment of whether the director continues to meet applicable independence requirements.
The independent directors annually select a vice chairman from among the independent directors serving on Unocalís board. The vice chairman chairs the executive sessions of independent directors, coordinates with the chairman on agendas and schedules for board meetings, information provided to directors in connection with board meetings and other matters pertinent to Unocal and the board, and serves as a liaison between senior management and the independent directors.
Unocalís bylaws currently provide that the board of directors shall be ten directors, subject to increase or decrease as provided under the bylaws or applicable law. The approval of at least 75% of the directors is required for the board to amend the bylaws to increase or decrease the authorized number of directors. The board's size is assessed periodically by the governance committee and changes are recommended to the board when appropriate.
The chairman of the board, in coordination with the vice chairman, sets the schedule for board meetings and determines the timing and length of the meetings, taking into account the proposed meeting schedule previously approved by the board for that year. The schedule and length of board meetings is intended to allow sufficient time for in-depth discussions, analysis and strategic planning. In addition to regularly scheduled meetings, unscheduled board meetings may be called from time to time to address specific needs or issues. The chairman, in coordination with the vice chairman, establishes the agenda for each board meeting, taking into account any input and suggestions from other members of the board and management and the proposed agenda items previously approved by the board for that year. Board materials related to agenda items are provided to board members sufficiently in advance of meetings to allow the directors to prepare for discussion of the items at the meeting.
Private meetings of independent directors without the presence of management are scheduled at each regularly scheduled board meeting. The vice chairman presides at those meetings.
The board has six standing committees: (1) audit, (2) management development and compensation, (3) board governance, (4) corporate responsibility, (5) retirement plan and (6) executive. All of these standing committees are comprised solely of independent directors, as defined by the NYSE and determined by the board, other than the executive committee, which includes the CEO. Each committee, including the executive committee, is chaired by an independent director who, in consultation with the other committee members, determines the agenda, frequency and length of committee meetings. Sufficient time to consider the agenda items is provided. Materials related to agenda items are provided to the committee members sufficiently in advance of the meeting to allow the members to prepare for discussion of the items at the meeting. The responsibilities and authority of the committees (other than the executive committee) are set forth in their charters, which shall be published on the Unocal website and mailed to stockholders on request. The responsibilities and authority of the executive committee, which meets only on an as-needed basis between full board meetings, are set forth in Unocalís bylaws. The committee chairs report the highlights of their meetings to the full board following each meeting of the respective committees. The governance committee annually recommends the appointment of members and chairs of these standing committees.
The compensation committee is responsible for setting annual and long-term performance goals for the CEO and for evaluating his or her performance against those goals. The committee meets with the CEO to receive his or her recommendations concerning those goals prior to the start of the relevant evaluation period. The committee annually evaluates the CEOís performance against those goals and establishes the level of compensation for the CEO based on that evaluation. The compensation committee also assists the CEO in the annual evaluation of other members of senior management and approves their compensation, after taking into account the CEOís recommendations. Compensation for the CEO and other senior management is linked to share price performance, operating objectives and other factors, including adherence to Unocalís Code of Conduct.
The board, as a matter of policy, does not authorize the re-pricing of stock options.
The board annually reviews candidates for all senior management positions to ensure that qualified candidates are available for all positions and that development plans are being utilized to strengthen the skills and qualifications of the candidates. To assist the board, the CEO and other management provide the board with an assessment of persons considered potential successors to the CEO and certain other senior management positions.
As provided in the Directorsí Code of Conduct, directors are expected to become and remain familiar with Unocalís business, economic and competitive environment, business plans, strategies and objectives, operational results and financial condition and relative marketplace position. Directors are also expected to commit the time necessary to prepare for, attend and actively participate in, all scheduled board and applicable committee meetings. Directors are expected to attend Unocalís annual stockholders meeting.
Directors have full access to officers and employees of Unocal and are able to talk directly to any member of management regarding any questions or concerns the director may have. The board meeting format is designed to encourage interaction between directors and Unocalís management. Senior management and other officers regularly attend board meetings and independent directors meet privately with the CEO at each regularly scheduled board meeting.
The board and each of its committees has the right at any time, at Unocalís expense and without consulting with or obtaining the prior approval of Unocal management, to retain independent outside financial, legal or other advisors. The compensation committee has the sole authority to hire and terminate compensation advisors for senior management compensation review. The audit committee has the sole authority to hire and terminate the outside auditors. The governance committee has the sole authority to hire and terminate search firms to identify director candidates and compensation advisors to advise on directors' compensation.
The governance committee has the responsibility for recommending to the board the form and amount of compensation for non-employee directors. Directors' compensation includes cash and stock-based incentives. Unocal does not have a retirement plan for non-employee directors. Employee directors are not paid additional compensation for their services as directors. The governance committee annually reviews and, if applicable, recommends changes to board compensation to ensure that the total compensation amount and form remains competitive and appropriate.
The board expects all directors and officers to display confidence in Unocal by ownership of an appropriate amount of equity in Unocal. Directors receive a part of their compensation in restricted stock units and officers receive a portion of their compensation in Unocal equity. Ownership targets are based on a multiple of yearly board retainers for directors and a multiple of base salary for officers. The governance committee (for directors) and compensation committee (for officers) periodically assess the guidelines and ownership relative to these guidelines and make recommendations as appropriate.
Unocal provides all new directors with an orientation program consisting of written materials and oral presentations by senior management that address a variety of matters, such as Unocalís strategic plans, significant financial, accounting and risk management issues, compliance programs, Unocalís Code of Conduct and the Directorsí Code of Conduct and Unocalís principal officers. Periodic site visits are also incorporated into the orientation and/or ongoing continuing education program for directors. Unocal supports continuing director education and reimburses directors for expenses incurred in attending third party education seminars relevant to their responsibilities as directors of Unocal.
Directors are expected to limit their other board memberships to a number which permits them, given their individual circumstances, to responsibly perform all of their Unocal director duties and to avoid any material actual or potential conflicts with Unocal. Outside directors are also expected to avoid any relationships that may impair their independence. The Directorsí Code of Conduct requires directors to inform the chairman of the board and chair of the governance committee in advance of accepting any other board positions. The governance committee will take into account the nature and time involved in a current or potential directorís service on other boards in recommending director nominees.
Non-employee directors must retire from the board on the day of the annual stockholders meeting following their 72nd birthday. Employee directors must retire once their active, regular employment with Unocal ends. However, the board, based on the recommendation of the governance committee, may approve exceptions to the retirement policy from time to time if it determines that an exception for a designated time period would be in the best interests of the board and Unocal. A non-employee director shall submit to the governance committee a letter offering to resign, upon any acceptance by the board, if his or her principal occupation or business association changes substantially during his or her tenure as a director. The governance committee will review and recommend to the board the action, if any, to be taken with respect to the offer of resignation, depending on whether the director continues to meet the boardís membership criteria under the circumstances.
Unocal seeks to ensure the confidentiality of all stockholder votes.
The board and each of its key standing committees are responsible for conducting performance self-evaluations at least annually. The results of the boardís self-evaluations are reported to the full board. The results of the committeesí self-evaluations are reported to the applicable committee and to the full board. If appropriate, recommendations are made to the board regarding any changes to improve the functioning and effectiveness of the board or its committees. Annual self-assessment questionnaires are used to gather input to assist in this process.
The board has adopted a policy to enhance the ability of stockholders and other interested parties to communicate directly with the non-management directors as a group, the entire Board or individual directors, including the Chairman, Vice Chairman and chair of any Board committee. A stockholder or other interested party may write to the non-management directors as a group in care of Mr. John W. Creighton, Jr., Vice Chairman of the Board of Unocal Corporation, 1000 Second Avenue, Suite 3700, Seattle, WA 98104. These communications will be received, reviewed and forwarded to the non-management directors by the Vice Chairman or the Vice Chairmanís designee, who will not be an employee of Unocal. A stockholder or other interested party may write to the entire Board or individual directors in care of Unocal Corporation, 2141 Rosecrans Avenue, Suite 4000, El Segundo, California 90245. A communication addressed to the Board in general is forwarded to the Chairman, the Vice Chairman, and, if appropriate, the chair of any relevant Board committee. A communication addressed to an individual director is forwarded to that director. Any communications that are not forwarded to the Vice Chairman are included in a log maintained by the Office of the General Counsel that is periodically reviewed by the Vice Chairman and are made available to any director upon request. Once forwarded to the non-management directors, the full Board or individual directors as described above, a communication will be considered and a determination of the appropriate response or action will be made, which may include, for example, a written response or an in-person or telephonic meeting. The Board has requested that items unrelated to the duties and responsibilities of the Board, such as junk mail and mass mailings, business solicitations, advertisements and other commercial communications, surveys and questionnaires, and resumes or other job inquiries, not be forwarded.
Unocal has established a comprehensive corporate compliance program as part of its commitment to responsible business practices in all of the communities in which it operates. This program combines oversight and leadership with robust implementation systems. All Unocal directors, officers and employees are required to abide by the Unocal Code of Conduct to insure that Unocalís business is conducted in a consistently legal and ethical manner. The Unocal Code of Conduct forms the foundation of a comprehensive compliance process that includes policies and procedures covering a variety of specific areas of professional conduct, including employment practices, conflicts of interest, intellectual property, confidentiality, health, safety and environment, human rights, labor and community issues, and strict adherence to all laws and regulations applicable to the conduct of Unocalís business. Unocal uses its Code of Conduct, web-based compliance training, the Unocal Alert Line (described below), audits, investigations, reviews and performance appraisals to ensure that Unocal's compliance program is effectively implemented. Directors are also required to comply with the Directorsí Code of Conduct, including its requirement to provide notification of any actual or potential conflicts of interest that may arise between a director and Unocal. In addition, all Unocal lawyers are required to report to the appropriate persons at Unocal evidence of any actual, potential or suspected material violation of state or federal securities law or material breach of fiduciary duty by Unocal or any of its officers, directors, employees or agents.
The Sarbanes-Oxley Act of 2002 requires audit committees to have procedures to receive, retain and treat complaints regarding accounting, internal accounting controls or auditing matters and to allow for the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters. Unocalís audit committee has designated Unocal's Compliance Alert Line for this purpose. The Alert Line may be accessed by telephone or e-mail and is available day and night, 365 days a year. It is staffed by a third-party organization, not by Unocal employees, and callers do not need to reveal their identity on the phone. E-mail is not anonymous, but the Alert Line staff will not reveal a callerís identity to Unocal. If needed, interpreters are available. Additional information about the Alert Line can be found in Unocalís Code of Conduct under ďAccountability Ė Compliance Program.Ē
The board, based on the recommendation of the governance committee, sets Unocalís corporate governance guidelines and reviews them at least annually.